Two Norwegian offshore service vessel (OSV) companies, Solstad Offshore (SOFF) and REM Offshore, have agreed to merge in order to weather the tough times the industry is going through.

The pair agreed on Wednesday, July 27, 2016, to merge REM with a wholly-owned subsidiary of Solstad.

REM, the principal shareholders of REM, and SOFF and its principal shareholders, have entered into an agreement that sets out the terms of the merger.

According to a joint press release by the duo, the merger will be completed as a statutory triangular merger pursuant to and in accordance with Norwegian law, whereby merger sub will be the surviving company.

Solstad will create a new class B shares which will have the same economic rights as the ordinary shares in SOFF (to be renamed class A shares), but with 1/10(th) vote.

It is Solstads intention that the new class B shares can be an instrument for further consolidation in the industry, the press release said. As merger consideration, REMs shareholders will receive new SOFF class B shares, except as provided below.

The merger will be based on an agreed exchange ratio of 0.0696 SOFF shares per REM share. This is based upon the issue prices in REM and SOFF’s private placements, proposed this June and July, of NOK 0.87 per share and NOK 12.50 per share respectively, corresponding to an agreed exchange ratio of 0.0696 SOFF class B shares per REM share.

Åge Remøy and his related companies will, however, receive 6,000,000 SOFF class A shares for the first NOK 75 million REM shares subscribed by them in REM’s NOK 150 million directed share issue, which will be carried out as proposed before the merger.

It is a condition from Åge Remøy’s side that his current controlling position in REM is carried over into a significant voting interest in Solstad after the merger, which will be effected by his entitlement to get half of the consideration shares attributable to the directed share issue in REM in the form of SOFF class A shares.

The principal shareholders of Solstad have agreed to having Åge Remøy as a key industrial shareholder. His principal holding company will also nominate a member to the board of directors of Solstad upon effectiveness of the merger.

“The offshore service vessel (OSV) industry is undergoing a period of great uncertainty,” says Lars Peder Solstad, CEO of Solstad.

“Reduced spending across the upstream value chain has contributed to the current overcapacity, adversely impacting dayrates and utilization. The OSV industry’s fragmented structure is further compounding these negative effects. Solstad and REM both see the need to create larger entities with financial and operational strength to weather the downturn. The combination of Solstad and REM is one step in the right direction, but there remains a strong rationale for further consolidation.”

REM and Solstad are Norwegian offshore service vessel companies that combined will operate a total of 62 vessels. After the merger, Solstad will retain its Skudeneshavn head office, from which the combined fleet of CSV vessels will be operated. The combined fleet of PSV vessels will be operated from the current REM head office in Fosnavåg.

“On a standalone basis, both REM and Solstad have strong operational capabilities, high-in-demand specialist expertise, and an employee and management base that cultivates innovative business developments,” REM CEO Arild Myrvoll said.

“From a commercial perspective, the Merger will further strengthen these pillars of productivity and profitability, while at the same time improving margins and reducing downtime through inherent cost and operational synergies.”

“I am satisfied that the merged company will allocate substantial activities to Fosnavåg, with potential for substantial increase, which will contribute to securing development possibilities for the region and stable employment opportunities for our nearly 500 highly qualified employees,” says REM Chairman Åge Remøy.

“Solstad and Aker have put forth an industrial solution for the restructuring of Rem Offshore. The merger is a necessary structural measure in today’s offshore service vessel (OSV) market, which will enable the combined company to achieve significant synergies through more efficient operations and a lower cost base. The combination of Solstad’s, REM’s and Aker’s industrial expertise, M&A capabilities and financial strength will provide a strong platform through Solstad for further development of the OSV industry,” says Øyvind Eriksen, President and CEO of Aker.

Extraordinary shareholders meetings in REM and SOFF are expected to be held on or around October 1, 2016, with the merger becoming effective on or around December 1, 2016.

REM is undergoing an overall restructuring to strengthen its balance and liquidity position. The merger is premised upon the completion of REM’s restructuring prior to the merger, requisite approvals from creditors of REM and SOFF and requisite approvals or absence of intervention by competent regulatory authorities.

The merger is supported by the largest shareholder in REM, Åge Remøy and companies controlled by him, as well as the largest shareholders in SOFF.

SOFF is also going through a comprehensive refinancing plan. At the same time SOFF also disclosed that it foresees to participate in a consolidation within the industry.